What Companies Need To Know

Business concept of planning 2021. Male hand flips wooden cubes and changes the inscription 'Taxes 2020' to 'Taxes 2021'. Beautiful orange background, copy space.

Business concept of planning 2021. Male hand flips wooden cubes and changes the inscription 'Taxes 2020' to 'Taxes 2021'. Beautiful orange background, copy space.

Enterprise idea of planning 2021. Male hand flips picket cubes and adjustments the inscription ‘Taxes … [+] 2020’ to ‘Taxes 2021’. Lovely orange background, copy area.

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For companies throughout America, it’s that point once more to consider the required IRS paperwork. However there have additionally been some adjustments, as needs to be no shock.

One is concerning the 1099-MISC type. Historically this has been used to report contractor revenue. However now companies must use the 1099-NEC type (it’s quick for “non-employee compensation”). That is truly one thing that was used about 30 years in the past. However now the IRS desires to revive the shape and the primary motive is that the company desires to make it simpler to cope with the deadlines. Be aware {that a} 1099-MISC type additionally consists of revenue for rents, prizes/awards, medical funds and so forth. 

The excellent news is that if you’re acquainted with the necessities for the 1099-MISC type, then the brand new one won’t be a lot totally different. So let’s have a look.

Initially, listed here are the primary necessities for submitting a 1099-NEC type:

  • The cost–which was made to a contractor–should be at the very least $600 for the tax yr. The quantity is reported on Field 1 of the 1099-NEC type.
  • The cost was made for providers for your small business. Thus, it can’t be for private actions, comparable to having somebody restore your own home. However the funds may be made to authorities companies and nonprofits. 
  • They cost should be for a person, partnership, property or company. Though, there may be an exception–that’s, if the entity is a C company or S company. 

Be aware that there are another instances when you should file a 1099-NEC type, which aren’t as frequent. They embody the next:

  • A cost of at the very least $10 for royalties.
  • Withholding of any federal revenue taxes for backup withholding for workers.

If you’re required to file a 1099-NEC type, then the deadline is January thirty first. You’ll ship Copy A to the IRS and Copy B to the contractor—and these may be filed by mail or e-filed. There additionally could also be an extension granted for the deadline if there’s a certified hardship. 

Moreover the submitting of the 1099-NEC type, additionally, you will must have the payee fill out and signal a Kind W-9. That is to get the right Tax Payer Identification Quantity (TIN), like a Social Safety Quantity. 

Now one of many hardest components about figuring out whether or not to file a 1099-NEC type is whether or not the payee is a contractor or not. The necessities may be ambiguous. Simply take a look at the litigation that firms like Uber and Lyft have waged on this matter!

As for the IRS, it does present some steering. The final definition for a contractor is an individual that has the “proper to regulate or direct solely the results of the work and never what will probably be completed and the way it is going to be completed.” The IRS does give some examples, comparable to the next:

  • Commissions to gross sales those who have compensation phrases however haven’t been repaid in the course of the tax yr. 
  • Charges for skilled providers like authorized and monetary recommendation. 
  • Charges amongst professionals, say for referrals. 

If a contractor is disqualified by the IRS, the results may be extreme. You could be topic to harsh fines, penalties and again taxes. In different phrases, you probably have any considerations or questions, its most likely a good suggestion to hunt the recommendation from an lawyer or CPA.

Tom Taulli (@ttaulli) is an Enrolled Agent, which is the best designation for the IRS, and operates PathwayTax, which is licensed to offer recommendation in 50 states within the U.S.

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